From theory to returns: How active REIT investing delivers alpha

In Mispriced and overlooked, global real estate may be next to run, we argued that, despite improving fundamentals, global REITs are trading at rare discounts to global equities.

In Why this is an active manager’s market in listed property, we explained how best to take advantage of this opportunity. Dispersion across sectors and regions makes stock selection critical, with the active approach of the Dexus GREIT Fund tailor-made to exploit the gap between price and value.

Here, we’re moving from theory to practice, covering two global REITs that demonstrate our approach in sectors benefiting from structural tailwinds, rental tension and attractive valuations.

Industrial and logistics: The persistence of e-commerce

After the dramatic rise during the pandemic, across the world, the penetration of e-commerce has continued at pace. This ongoing structural shift in consumption channel is evidenced by the chart below, showing the percentage of total sales taking place online across developed global markets:

Global e-commerce penetration is increasing

The elevated supply that occurred during Covid has now been almost fully absorbed. In addition, reshoring, driven by the desire to reduce supply chain dependencies, has increased manufacturing demand in North America and Europe.

Supply, meanwhile, has yet to fully respond. The markets are characterised by strict development constraints and long lead times. The barriers work in favour of those REIT portfolios already established. Many are benefiting from what commercial property analysts call ‘rental tension’, where growing demand and restricted supply enjoin to deliver rental increases to existing properties.

In the UK, Urban Logistics REIT (LSE: SHED) was a prime example. This REIT comprised a curated portfolio of ‘last mile’ warehouses essential for getting goods to customers' doors in crowded urban cities.

Despite high-quality fundamentals and a portfolio ripe for organic growth through rent increases, the stock had been trading at a significant discount.

Our thesis rested on four elements. Firstly, a pure-play exposure to the e-commerce trend. Secondly, the company had recently acquired assets that were being rented at below market rates. When those leases expired, we thought it highly likely they would be re-rented at higher rates.

Thirdly, the company’s portfolio was actively managed and well run. There was plenty of potential for earnings to substantially increase. The final point was perhaps the strongest, an implied capitalisation rate materially above private transaction levels.

Implied cap rate (%)

Our initial investment reflected an 8.0% implied cap rate but transaction evidence pointed to a more realistic cap rate of 6.5–6.6%. That 150 basis point spread implied substantial equity mispricing.

That’s how things played out. The potential rental growth eventuated but the market’s assessment of value was anomalous, prompting investors to lobby the company to close the discount to fair value. Ultimately, they were successful. A much larger listed peer took over Urban Logistics for a handsome premium of 33%.

This would have made no difference to the GREIT benchmark fund, which held a weighting of exactly 0% in the stock. In the Dexus GREIT Fund, however, a weighting of 3.75%, meaningfully added to our outperformance.

When public equity markets price assets at discounts to private market values, corporate activity often arbitrages the gap, with merger and acquisition activity often the catalyst.

This is a practical example of how investors can profit from active management in a way that index huggers cannot.

If anything, the supply/demand imbalance in some areas of industrial property are even stronger in the North American REIT sector for real estate portfolios providing for retirement and assisted living.

The arithmetic is compelling. Over the last 15 years, the compound annual growth rate of seniors over 80 in the United States has been 1.4%. Between 2026 and 2030, that figure is set to rise to 5%, a more than threefold increase.

U.S. population aged +80yrs

Annual unit development (Current vs. required)

Assuming 90% occupancy

Assuming 90% occupancy, required unit delivery far exceeds current construction. The supply gap, already clear in the chart above (right), widens materially through 2030.

For operators, supply constraints will almost certainly lead to improving occupancy and pricing power. As occupancy rises, incremental revenue adds to net operating income because seniors housing has a largely fixed cost base.

The total return potential is clear, which is why assisted living is the Fund’s largest exposure at over 24%. This weighting reflects our conviction in where earnings momentum is clearest and stands in stark contrast to the GREIT index weighting of 12.65%.

Toronto-listed Chartwell Retirement (TSE: CSH.UN) is a clear expression of our conviction.

The first pillar in the argument concerns the demographic inevitability of an ageing population. Canada’s 75+ population is expected to double over the next 20 years. Combined with historically low new construction across North America, the supply-demand gap is widening.

The second is operating leverage. Same-property occupancy has already increased from 80.6% in 2022 to 95.2% in 2025. In a sector with high fixed costs, this 1,450 basis point improvement is a big driver of net operating income.

Chartwell same property occupancy

5Y Annualised total return

We hold a 4.0% position in Chartwell versus a 0% benchmark weight. That active exposure matters and will drive positive outcomes for investors, in our view.

The performance figures reinforce the operating story. Five-year annualised total return was 32.7%, compared with 15.5% for Canadian REITs and 6.4% for Global REITs. That degree of outperformance rarely occurs without both earnings growth and multiple expansion.

Importantly, with occupancy reaching the highest level in company history, the sector may still be in the early innings of its earnings cycle rather than at peak conditions.

For investors, the lesson is not simply that Chartwell performed well. It is that public markets were slow to recognise improving fundamentals. Our active positioning ahead of full recognition generated excess returns.

Both examples underscore why index exposure struggles in this environment and active management excels.

Neither stock had benchmark weight and both delivered alpha through our conviction positioning. And in both cases, the closing of the price–value gap was measurable in occupancy, cap rates and realised returns.

This is what the Dexus GREIT Fund is all about and why we are targeting low teens returns. For investors seeking protection in an uncertain world, the combination of a reliable, growing yield and the potential for significant capital appreciation as valuation gaps close is a compelling proposition.

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